One of the best attended sessions at last fall’s ICAEW Valuations Conference in London was ‘Valuations in Divorce,’ led by PwC’s Sarah Middleton and Jonny Rodwell. These cases continue to show up in the courts—and in the morning papers.

Middleton and Rodwell managed to work around the celebrity gossip to focus on the most contentious valuation issues in recent cases. For instance:

• Cooper-Hohn v Hohn (the largest UK divorce settlement ever) offered the business valuation profession a great deal of guidance on business or personal goodwill. ‘Key man,’ management structure, relative transferability of the marital partners under new ownership, and transactions involving similar businesses all played an important role in determining this settlement. The Court concluded ultimately that Hohn was unlikely to work for someone else, and that the business had no market without him. As the Court of Appeal agreed, ‘it is speculative to suggest that a purchaser could be found to pay for an income stream that can and would walk out the door…’
• Liquidity is nearly always a challenge in divorce valuations. As Middleton and Rodwell said, ‘despite having a large number of assets or being highly valuable, some companies face significant challenges in easily extracting cash.’ Asset breakup to cash can destroy the business, and may be costly and slow, so the business valuer must make a clear determination of how easily various assets (dividends, surplus cash, surplus assets, committed capital, external debt, preference share, etc.) can be converted to a transferable status.
• A final issue that PwC valuers face regularly is marketability and liquidity discounts related to the value of shares. Middleton and Rodwell cited the 2017 Martin v Martin case where the courts examined share-to-cash discounts of between 30% and 50%, and whether these discounts might value ‘account realisation difficulties twice.’

‘We need to be clear in how we differentiate and treat both the underlying riskiness of each asset class, and the risk around the robustness of our assumptions,’ Middleton concludes.